<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
DECEMBER 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE AT OF 1934 FOR THE TRANSITION PERIOD FROM
_________________ TO_____________________
Commission file number 2-63708
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-0609840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
West 929 Sprague Ave., Spokane, WA 99204
(Address of principal executive offices) (Zip Code)
(509)838-3111
(Registrant's telephone number, including area code)
__________________________________________________________
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS: (Not Applicable)
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes / / No / / N/A
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
130 SHARES - Common "A" at January 31, 1996
0 SHARES - Common "B" at January 31, 1996
<PAGE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
Part I - Financial Information: Index
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
December 31, 1995 (Unaudited) and
September 30, 1995
Consolidated Condensed Statements of Income
Three Months Ended December 31, 1995
and 1994 (Unaudited)
Consolidated Condensed Statements of Cash Flows
Three Months Ended December 31, 1995 and 1994
(Unaudited)
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<PAGE>
Part I - Financial Information
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 6,561,219 $32,798,627
Investments:
Trading Securities, at market 1,545,797
Available-for-Sale Securities,
at market 76,281,626 31,829,980
Held-to-Maturity Securities,
at amortized cost (market value
$113,372,348 and $182,063,885) 115,201,507 188,073,542
Accrued Interest on Investments 3,038,502 2,372,891
-------------- ------------
Total Cash and Investments 202,628,651 255,075,040
-------------- ------------
Real Estate Contracts and Mortgage
Notes and Other Receivables 687,563,251 629,085,029
Real Estate for Sale and
Development - Including
Foreclosed Real Estate 90,950,608 91,105,003
-------------- ------------
Total Receivables and
Real Estate Assets 778,513,859 720,190,032
Less Allowance for Losses (8,088,895) (8,116,065)
-------------- ------------
Net Receivables and
Real Estate Assets 770,424,964 712,073,967
-------------- ------------
Deferred Acquisition Costs 74,339,422 74,521,803
Land, Building and Equipment - net
of accumulated depreciation 8,242,245 8,148,850
Other Assets, net of allowance 29,107,804 28,648,340
-------------- --------------
TOTAL ASSETS $1,084,743,086 $1,078,468,000
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
(Unaudited)
<S> <C> <C>
LIABILITIES
Life Insurance and Annuity Reserves $797,438,743 $781,716,153
Debenture Bonds 199,424,351 201,311,873
Other Debt Payable 14,971,371 25,552,451
Securities Sold, Not Yet Purchased 1,571,810
Accounts Payable and Accrued
Expenses 16,778,782 15,558,818
Deferred Income Taxes Payable 12,614,723 12,254,475
Minority Interest in Consolidated
Subsidiaries 1,445,173 1,503,788
-------------- --------------
TOTAL LIABILITIES 1,044,244,953 1,037,897,558
-------------- --------------
STOCKHOLDERS' EQUITY
Preferred Stock, Series A, B, C, D,
E Cumulative with Variable Rate,
$10 Par Value, Authorized 8,325,000
Issued 2,162,544 Shares and
2,162,711 Shares (Liquidation
Preference $48,225,751 and
$47,825,310, respectively) 21,625,440 21,627,106
Class A Common Stock - Voting,
$2,250 Par Value, Authorized
222 Shares, Issued 130 Shares,
respectively 293,417 293,417
Additional Paid-In Capital 15,416,641 14,917,782
Retained Earnings 3,941,493 4,561,554
Net Unrealized Gains (Losses) on
Investments (778,858) (829,417)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 40,498,133 40,570,442
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,084,743,086 $1,078,468,000
============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
December 31,
1995 1994
<S> <C> <C>
REVENUES:
Insurance Premiums Earned $ 750,000 $ 750,000
Interest and Earned Discounts 21,919,875 21,733,852
Real Estate Sales 10,608,025 9,338,789
Fees, Commissions, Service
and Other Income 691,557 975,630
Realized Investment Gains (Losses) 2,800 (165,598)
Receivables 84,490
---------- ----------
TOTAL REVENUES 34,056,747 32,632,673
---------- ----------
EXPENSES:
Insurance Policy and Annuity
Benefits 12,061,640 10,878,406
Interest Expense 3,778,835 4,571,765
Cost of Real Estate Sold 10,466,642 9,445,463
Provision for Losses on Real
Estate Assets 934,543 700,396
Salaries and Employee
Benefits 2,280,868 2,339,306
Commissions to Agents 2,431,199 2,695,546
Other Operating and
Underwriting Expenses 1,628,563 1,408,912
Less Increase in Deferred
Acquisition Costs (9,132) (189,933)
---------- ----------
TOTAL EXPENSES 33,573,158 31,849,861
---------- ----------
Income Before Income Taxes and
Minority Interest 483,589 782,812
Provision For Income Taxes (170,933) (265,468)
---------- ---------
Income Before Minority
Interest 312,656 517,344
Income of Consolidated
Subsidiaries Allocated to
Minority Stockholders (9,311) 6,041
---------- ---------
NET INCOME $ 303,345 $ 523,385
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1995 1994
<S> <C> <C>
Net Cash Provided By
Operating Activities $12,326,474 $ 9,217,627
----------- -----------
Cash Flows From Investing Activities:
Principal Payments on Real Estate
Contracts and Mortgage Notes
and Other Receivables 27,684,554 26,842,758
Proceeds From Real Estate Sales 921,950 609,834
Proceeds From Investment Maturities 226,100 1,316,195
Proceeds from Sale of Available
for Sale Securities 28,121,115 25,299,803
Purchase of Available for Sale
Securities (17,380,831)
Proceeds From Sale Real Estate Contracts
and Mortgage Notes and Other
Receivables 2,335,415
Acquisition of Real Estate Contracts and
Mortgage Notes and Other Receivables (77,570,084) (38,870,490)
Additions to Real Estate Held (8,938,063) (8,016,640)
Capital Expenditures (336,713) (80,772)
----------- ------------
Net Cash Used In Investing Activities (27,555,726) (10,280,143)
------------ ------------
Cash Flows From Financing Activities:
Net Change Short Term Borrowings from
Brokers and Banks (12,646,875) (30,052,500)
Receipts From Life and Annuity Products 25,261,674 30,498,734
Withdrawals on Life and Annuity Products (20,748,194) (26,095,706)
Repayment to Banks and Others (33,496) (211,310)
Issuance of Debenture Bonds 4,791,350 10,897,221
Issuance of Preferred Stock 554,336 1,529,959
Repayment of Debenture Bonds (7,206,402) (8,411,669)
Cash Dividends (923,406) (1,025,411)
Redemption of Capital Stock (57,143) (64,080)
----------- -----------
Net Cash Used In Financing Activities (11,008,156) (22,934,762)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents (26,237,408) (23,997,278)
Cash and Cash Equivalents at Beginning
of Period 32,798,627 29,275,716
----------- -----------
Cash and Cash Equivalents at End
of Period $ 6,561,219 $5,278,438
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
1. In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments necessary to present fairly the financial position
as of December 31, 1995, and the results of operations for the
three months ended December 31, 1995 and 1994 and changes in
cash flows for the three months ended December 31, 1995 and
1994. The results of operations for the three month period ended
December 31, 1995 and 1994 are not necessarily indicative of the
results to be expected for the full year.
2. The principal amount of receivables as to which payments were in
arrears more than three months was $22,800,000 at December 31,
1995 and $17,500,000 at September 30, 1995.
3. Metropolitan Mortgage & Securities Co., Inc. had no outstanding
legal proceedings other than normal proceedings associated with
receivable foreclosures, and/or the general business activities
of the Company.
4. Certain amounts in the prior year's consolidated condensed
financial statements have been reclassified to conform with the
current year's presentation. These reclassifications had no
effect on net income or retained earnings as previously
reported.
5. On January 31, 1995 the Company concluded an agreement with
Summit Securities, Inc. (Summit), whereby it sold Metropolitan
Investment Securities, Inc. (MIS) to Summit, at a sale price of
$288,950, which approximated the current book value of MIS at
date of sale. On May 31, 1995 the Company concluded an agreement
with Summit, whereby it sold Old Standard Life Insurance Company
(OSL) to Summit effective May 31, 1995, at a sale price of
$2,722,000, which approximated the current book value of OSL at
date of sale, with future contingency payments based on the
earnings of OSL. The sales price plus estimated future
contingency payments approximates the actuarial appraised
valuation of OSL.
6. In December 1995, the Company reassessed the appropriateness of
the classifications of its securities investments. Based on
this reassessment, the Company transferred $72,572,322 of
securities from the Held-to-Maturity classification to the
Available-for-Sale classification. This transfer was based on
guidance included in the special report issued by the Financial
Accounting Standards Board, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities".
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Completed Transactions:
On January 31, 1995, Metropolitan Mortgage & Securities Co., Inc.
(Metro or the Company) and Summit Securities, Inc. (Summit)
consummated a sale/purchase transaction whereby 100% of the common
stock of Metropolitan Investment Securities, Inc. (MIS) was sold to
Summit. The cash sale/purchase price was $288,950, the approximate
net book value of MIS at closing. MIS is a limited-purpose broker
dealer and the exclusive broker/dealer for the securities sold by
Metro and Summit. It is anticipated that this sale will not
materially affect the future business operations of MIS.
Additionally, by agreement, effective January 31, 1995, Metro
discontinued its property development division, which consisted of a
group of employees experienced in real estate development. On the
same date, Summit commenced the operation of a property development
subsidiary employing those same individuals who had previously been
employed by Metro. Summit Property Development Corporation, a 100%
owned subsidiary of Summit, has negotiated an agreement with Metro to
provide future property development services.
On May 31, 1995, Metro and Summit consummated a sale/purchase
transaction whereby 100% of the common stock of Old Standard Life
Insurance Company (OSL) was sold to Summit. The cash sale/purchase
price was $2,722,000, the approximate net book value of OSL at
closing, with future contingency payments based on the earnings of
OSL. The sale/purchase price plus estimated future contingency
payments approximates the actuarial appraised valuation of OSL. OSL
is engaged in the business of acquiring receivables using funds
derived from the sale of annuities and funds derived from receivable
cash flows. The sale of OSL decreased total assets by approximately
$46.2 million while total liabilities also decreased by approximately
$46.2 million. Significant assets removed from the consolidated
financial statement included cash and cash equivalents of $1.4
million, investments of $9.4 million, receivables of $32.1 million,
real estate of $.5 million, deferred acquisition costs of $2.6 million
and other assets of $.2 million. Significant liabilities removed
included insurance annuity reserves of $44.5 million and accounts
payable and other liabilities of $1.7 million.
Financial Condition and Liquidity:
As of December 31, 1995, the Company had cash or cash equivalents
of $6.6 million and liquid investments (trading or available-for-sale
securities) of $77.8 million compared to $32.8 million in cash and
cash equivalents and $31.8 million in liquid investments at September
30, 1995. Management believes that cash, cash equivalents and
liquidity provided by other investments are adequate to meet planned
asset additions, debt retirements or other business operational
requirements during the next twelve months. At December 31, 1995,
total cash and investments, including held-to-maturity securities,
were $202.6 million as compared to $255.1 million at September 30,
1995. During the three month period ended December 31, 1995 the
decrease in total cash and investments of approximately $52.4 million
was primarily offset by a corresponding increase of $58.4 million in
net receivables and real estate assets. During the period ended
December 31, 1995, the Company reassessed its securities
classifications and transferred approximately $72.6 million from the
held-to-maturity classification to the available-for-sale
classification. This transfer was based on guidance provided by the
Financial Accounting Standards Board through their special report for
implementation of SFAS No.115 on accounting for debt securities.
The receivable portfolio totaled $687.6 million at December 31,
1995 compared to $629.1 million at September 30, 1995. The increase
resulted from the acquisition of receivables of $77.6 million plus an
additional $9.7 million of loans to facilitate the sale of real estate
being partially offset by principal collections on receivables of
$27.7 million, sales of receivables of $2.3 million and reductions due
to foreclosed receivables of approximately $2.4 million. Other
adjustments related to underlying debt assumptions, accrued interest
and discount amortization resulted in increases of approximately $3.6
million.
Real estate held for sale and development decreased slightly to
$91.0 million at December 31, 1995 from $91.1 million at September 30,
1995. Real estate additions of $11.6 million, including $2.7 million
of foreclosed receivables, were more than offset by costs of real
estate sold of $10.5 million, depreciation of $.6 million and
chargeoffs to the allowance for losses of $.6 million.
Life insurance and annuity policy reserves increased $15.7
million during the three month period ended December 31, 1995 to
approximately $797.4 million from $781.7 million at September 30,
1995. This increase resulted from credited earnings of $11.2 million
along with $4.5 million of new cash flow as receipts from sales of new
life and annuity products of $25.2 million exceeded withdrawals of
$20.7 million from existing policies. Net debenture bonds outstanding
decreased by $1.9 million to $199.4 million at December 31, 1995 from
$201.3 million at September 30, 1995. Net cash outflow from
maturities, less issuance of new debentures, was approximately $2.4
which was offset by $.5 million increase in credited interest held.
Additionally, the Company had cash flow, net of redemptions, of
approximately $.5 million from the sale of preferred stock during the
three months ended December 31, 1995. During the three month period
ended December 31, 1995, the Company reduced a portion of its other
debt payable represented by short term borrowings by $12.6 million to
an approximate outstanding amount of $11.5 million in short term
borrowings at December 31, 1995. In addition, the Company had
liabilities at December 31, 1995 of approximately $1.6 million from
securities sold, but not yet purchased.
Total assets increased $6.2 million to $1,084.7 million at
December 31, 1995 from $1,078.5 million at September 30, 1995. During
the three month period, the Company primarily used cash flow from life
insurance and annuity products along with existing cash and
investments to increase its receivable portfolio and pay down short
term borrowings. At December 31, 1995 and at September 30, 1995, the
Company had net unrealized losses on securities available-for-sale in
the amount of $.8 million. Net unrealized losses on securities
available-for-sale is presented as a separate component of
stockholders' equity.
Results of Operations:
The Company recorded net income before preferred dividends for
the three months ended December 31, 1995 of $303,000 compared to
$523,000 in the prior year's period. Comparing the current year's
three month period with the prior year's similar period, decreases in
the net interest spread, decreases in fees, commissions and other
income, increases in the provision for losses on receivables and real
estate assets, were only partially offset by increased gains from the
sale of real estate, sale of investment securities and the sale of
receivables.
For the three month period ended December 31, 1995, the Company
reported a positive spread on its interest sensitive assets and
liabilities of $6.8 million as compared to $7.0 million in the prior
year's period. The total interest spread has remained relatively flat
in the current stable to lower interest rate environment. This has
been the result of managements decision to control life and annuity
policy surrenders by maintaining stable credited rates while there has
been some contraction in available investment earnings rates. Any
effect on the net interest spread by controlling surrenders is
normally offset by improvement in the amortization of insurance and
annuity related acquisition costs. In the current year's period ended
December 31, 1995, the amortization of deferred policy acquisition
costs is approximately $297,000 less than in the prior year's similar
period.
During the three months ended December 31, 1995, the Company
realized net gains from the sale of investments of $3,000 compared to
net losses of $166,000 in the prior year period. In the prior year
management had made the decision to take losses on certain investments
in order to take advantage of reinvesting in higher yielding
investment opportunities. Additionally, in the current year's period
the Company realized gains of $85,000 from the sale of approximately
$2.3 million of receivable investments.
The Company realized net gains of $141,000 on sales of $10.6
million of real estate in the current year's period compared to net
losses of $107,000 on sales of $9.3 million in the prior year's
period. It has been the policy of management to actively sell its
real estate in order to return the investment to an earning asset. In
addition to returning these assets to earning status, the Company has
been able to reduce other operating expenses associated with its real
estate, such as insurance, taxes, maintenance and amenities.
New Accounting Rules:
In May 1993, Statement of Financial Accounting Standards No.114
(SFAS No.114) "Accounting by Creditors for Impairment of a Loan" was
issued. SFAS No.114 requires that certain impaired loans be measured
based on the present value of expected future cash flows discounted at
the loans' effective interest rate of the fair value of the
collateral. The Company was required to adopt this new standard as of
October 1, 1995. The adoption of SFAS No.114 had no material effect
on the Company's consolidated financial statements.
The Company adopted the provisions of SFAS No.115 "Accounting for
Certain Investments in Debt and Equity Securities", on September 30,
1993. Additionally, under guidance issued by the Financial Accounting
Standards Board for the implementation of SFAS No.115, the Company
transferred approximately $72.6 million from the Held-to-maturity
classification to Available-for-Sale classification during the three
month period ended December 31, 1995.
In March 1995, SFAS No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", was
issued. SFAS No.121 requires certain long-lived assets, such as the
Company's real estate assets, be reviewed for impairment in value
whenever events or circumstances indicate that the carrying value of
an asset may not be recoverable. In performing the review, if
expected future undiscounted cash flows from the use of the asset or
the fair value, less selling costs, from the disposition of the asset
is less than its carrying value, an impairment loss is to be
recognized. The Company is required to adopt this new standard by
October 1, 1996. The Company does not anticipate that the adoption of
SFAS No.121 will have a material effect on the Company's consolidated
financial statements.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings or actions pending
or threatened against Metropolitan Mortgage & Securities Co., Inc. or
to which its property is subject.
Item 2. Changes in Securities
N/A
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submission of Matters to a Vote of Security Holders
N/A
Item 5. Other Information
N/A
Item 6. Exhibits and Reports on Form 8-K
N/
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
(Registrant)
/s/ BRUCE J. BLOHOWIAK
Date 2/20/96
--------------- ---------------------------------------------
Bruce J. Blohowiak
Executive Vice President, Chief Operating
Officer and Director
/s/ ERNEST JURDANA
Date 2/20/96
--------------- ---------------------------------------------
Ernest Jurdana
Vice President
(Principal Accounting Officer)
/s/ REUEL SWANSON
Date 2/20/96
---------------- --------------------------------------------
Reuel Swanson
Secretary and Director
/s/ STEVEN CROOKS
Date 2/20/96
--------------- ---------------------------------------------
Steven Crooks
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 6,561
<SECURITIES> 196,067
<RECEIVABLES> 687,563
<ALLOWANCES> 8,089
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 16,800
<DEPRECIATION> 8,558
<TOTAL-ASSETS> 1,084,743
<CURRENT-LIABILITIES> 0
<BONDS> 214,396
<COMMON> 293
0
21,625
<OTHER-SE> 18,580
<TOTAL-LIABILITY-AND-EQUITY> 1,084,743
<SALES> 0
<TOTAL-REVENUES> 34,057
<CGS> 0
<TOTAL-COSTS> 28,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 934
<INTEREST-EXPENSE> 3,779
<INCOME-PRETAX> 484
<INCOME-TAX> 171
<INCOME-CONTINUING> 313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303
<EPS-PRIMARY> (4,770.00)
<EPS-DILUTED> (4,770.00)
</TABLE>
